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Oil Price Declines Could Hurt U.S. Financial Markets: The Role of Oil Price Level

Author

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  • Ha Nguyen
  • Huong Nguyen
  • Anh Pham

Abstract

This paper investigates the causal effects of oil price fluctuations on United States’ financial markets using daily oil price and financial market data from 2011 to 2016. To address endogeneity, we follow the heteroscedasticity-based identification strategy by Rigobon (2003) and instrument for changes in oil prices with exogenous shocks on current and future oil supply. We find that a decline in oil price negatively affected markets after 2014 when oil price was very low, but not before 2014 when the price was relatively high. These novel findings suggest oil price level could affect the impact of a decrease in oil prices on financial markets.

Suggested Citation

  • Ha Nguyen & Huong Nguyen & Anh Pham, 2020. "Oil Price Declines Could Hurt U.S. Financial Markets: The Role of Oil Price Level," The Energy Journal, , vol. 41(5), pages 1-22, September.
    • Handle: RePEc:sae:enejou:v:41:y:2020:i:5:p:1-22
    DOI: 10.5547/01956574.41.5.hngu
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    References listed on IDEAS

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    Cited by:

    1. Zhang, Weiqian & Li, Songsong & Romanova, Valentina & Xu, Nan, 2025. "Dynamic spillovers between Chinese oil futures market and global financial markets under geopolitical risks," Energy, Elsevier, vol. 326(C).
    2. Fayc{c}al Djebari & Kahina Mehidi & Khelifa Mazouz & Philipp Otto, 2025. "Forecasting Oil Volatility through Network Models with GARCH-Informed Correlation Weights," Papers 2507.15046, arXiv.org, revised Feb 2026.
    3. Manthos D. Delis & Kathrin de Greiff & Maria Iosifidi & Steven Ongena, 2024. "Being stranded with fossil fuel reserves? Climate policy risk and the pricing of bank loans," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 33(3), pages 239-265, August.
    4. Zaghum Umar & Mariya Gubareva & Tamara Teplova & Wafa Alwahedi, 2025. "Oil price shocks and the term structure of the US yield curve: a time–frequency analysis of spillovers and risk transmission," Annals of Operations Research, Springer, vol. 352(3), pages 363-387, September.

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